Catholic Social Teaching and Mindful Markets

During his first official visit to New York, President George W. Bush paused between other duties to present a Congressional gold medal to the family of the late Cardinal John O’Connor. While covering that event, National Public Radio explored this administration’s efforts to reach out to Catholic voters, a significant electoral bloc in some of the swing states that the president lost in November of 2000. NPR quoted White House staff who suggest that Mr. Bush is gaining ground among traditionally Democratic-leaning Catholics because policies like his faith-based initiative reflect the same core values that are consistently affirmed in Catholic social teaching (C.S.T.).

I spend a fair bit of time looking at C.S.T. principles and their relevance to economic justice issues, hence my interest when politicians make explicit references to “subsidiarity, solidarity and human dignity.” If the White House embraces these tenets of C.S.T. as anything more than an electoral outreach strategy, then there are broader implications, not least for Mr. Bush’s attitude towards the role of big business in the promotion of economic justice. In matters as diverse as energy policy, campaign finance, carbon dioxide emissions or healthcare reform, this president has been all-too-easily identified with corporate interests. It would thus be especially inspiring if he were now to consider the links between C.S.T. and the growing movement to hold corporations accountable for their social and environmental impact.

Some dimensions of the push for corporate accountability have been around for decades, but it has taken on new energy and significance in recent years, like many other civil society initiatives, in response to the economic policy paradigm that has prevailed over the last two decades. Since the dawn of the Reagan-Thatcher revolution, the world has witnessed a fundamental restructuring of an implicit social contract that sought to balance the interests of government, private enterprise and ordinary citizens in the management of economic affairs. The old contract acknowledged the innovation and productivity of business, but mitigated the excesses of profit-driven activity with state institutions empowered to tax and regulate the private sector, in order to promote the common good.

The new vision, however, decries the failure of governments around the world to maximize growth and development, and promises instead that unfettered markets offer the best hope for improving social welfare. In developed countries, policymakers imbued with that vision have since fed us a steady diet of deregulation, privatization, fiscal downsizing and measures to liberalize trade and investment. Their counterparts in the global South have been obliged to follow suit, thanks to structural adjustment programs imposed by multilateral loan conditions and trade agreements.

While these measures have certainly increased the wealth of those most empowered to participate in a globalizing economy, they have also led to growing inequality around the world, to larger market shares for a smaller number of firms, and to greater volatility in international markets (as evidenced by the global contagion sparked by Asia’s financial crisis in 1997). Moreover, they have generated a powerful public perception that governments have abdicated their obligation to promote social welfare, and have ceded stewardship of the global economy to international corporations that are beholden only to their shareholders.

That conclusion is part of what drives the major street protests that have sprung up around the world, any time government officials meet to discuss economic policy, since the failed 1999 World Trade Organization Ministerial meeting in Seattle. But the perception is not confined to angry demonstrators. A Business Week magazine poll in September, 2000 found that fully three-quarters of the American people now believe that big business has gained too much control and influence over their lives.

Enter the corporate accountability movement, a loose collection of activists, academics and organizations challenging the disproportionate power that big business has consolidated over the past two decades. As with any social movement, it is hard to define any one proposition to which all adherents might comfortably subscribe. That said, it may surprise some readers to know that most people active in the movement are not necessarily anti-globalization, if that phenomenon is understood as the rise of international communication and solidarity, and not just the elimination of national sovereignty. They are not antitrade, so long as the rules that govern international commerce are transparent, fair and allow for compensation of those adversely affected. Nor are they antibusiness, provided that firms acknowledge their social and environmental responsibilities. Perhaps most important, they are not antimarket, so long as there are adequate social policies to engage the billions of people in the world without the financial means to participate in markets. This last point is crucial to a critique of the economic policies ushered in by the Reagan-Thatcher era.

Since the early 1980’s, the champions of economic liberalism have insisted that government intervention grossly distorts domestic and international markets, hence the imperative to diminish the role of the state so that competitive forces can “get the prices right.” To justify their prescriptions, they have appealed to the classical economic theorists, especially to the original vision of competitive markets laid out by Adam Smith over 200 years ago in The Wealth of Nations. Classical theory posits that, where there are (inter alia) multiple producers, perfect consumer information, and prices that factor in all costs incurred during production, the resulting market equilibrium will best balance the interests of all participants and thus guarantee the greatest common good.

Ironically, some of the more compelling arguments to support new measures for corporate accountability derive precisely from contradictions between the current business environment and these prerequisites for competitive markets. For example, mergers and acquisitions across all industrial, financial and service sectors have led to the concentration of economic power in fewer and larger firms, reducing the number of producers, enhancing monopoly power, and thus eliminating the kind of virtuous competition that broadly benefits producers and the public alike. Too often, corporations refuse to disclose information to which consumers and investors have a right—whether about potentially harmful effects of their products (as in the tobacco or tire industries), or about the labor and environmental conditions in which their goods are produced (as exposed by the anti-sweatshop movement).

Most commonly, corporations expect taxpayers to cover the costs of social disruption or environmental pollution—conveniently called “externalities” by economists—that are caused by their production processes. When one also considers the tax breaks and subsidies that business lobbyists extract from politicians in return for campaign contributions, it is easy to see just how far modern corporate culture has drifted from the classical conditions under which market forces might be expected to ensure the common good.

Among many others, David Korten has revisited Smith’s original analysis of market forces, and come up with rules for “mindful markets” to correct the distortions in our current corporate landscape. There is striking convergence between these guidelines and some major lessons of Catholic social teaching. For example, Korten suggests that markets should be judged by their contributions to life and the maintenance of ethical culture, not just by the amount of money they generate (not to mention the question of how evenly it is distributed). These precepts echo the church’s historic insistence on human dignity, economic justice, and the linkage between the religious and social dimensions of life.

Moreover, while recognizing that certain goods can only be efficiently produced on a large scale, the “mindful market” guidelines also stress that firms should operate in ways that allow for broad involvement in decision-making, some degree of meaningful stakeholder ownership (as opposed to the absentee shareholder model), and effective government oversight. Such ideas closely approximate Catholic thought on subsidiarity and participation—the importance of fostering local initiatives and community involvement, while recognizing the indispensable role of larger governmental structures to ensure what has been called the “social coordination and regulation [that are] necessary for the common good.”

It would take far more than a couple of paragraphs to explore fully the overlap between the vision of a socially just economy that emerges from Catholic social teaching, and the characteristics of “mindful markets” proposed by Korten and others. But the purpose of juxtaposing these two approaches to economic justice here is simply to underline their convergence in questioning whether markets dominated by ever-larger corporations, driven by quarterly profit goals and increasingly free of public oversight, really maximize the common good. Catholics who take seriously the cause of human dignity and solidarity should be encouraged to look closely at the work of social movements and faith communities that currently push for reform of the rules for global business.

There are multiple dimensions to the corporate accountability movement. One set of strategies recognizes the need for “hard” regulatory approaches to oblige large corporations to respect social and environmental concerns. In that vein, some groups have identified the need for stronger global governance structures, and focus their advocacy on the United Nations, the multilateral financial institutions and the World Trade Organization in the quest for effective structural controls. Others promote domestic regulation, especially legislation to force companies to disclose more information about conditions in their supply chains at home and abroad. The disclosure issue raises the question of exactly what type of non-financial data the public should have access to, and how such data should be reported. Accordingly, an impressive array of organizations and businesses are developing information standards and verification processes to meet this need.

Another set of corporate accountability strategies uses “soft” techniques, which essentially involve working through existing markets to refine corporate behavior. These would include groups that gather information to encourage socially responsible consumers and investors to support companies with a demonstrable commitment to sustainable business practices, at the expense of firms that evade such commitment. There are also movements to promote the launching and development of small and medium-sized businesses with explicit social and environmental objectives, including fair trade initiatives that bring small producers’ goods to new markets. The human rights, organized labor and environmental movements bring their energies to bear, too, either through pressure on companies that violate human rights and ecological standards, or through their support of domestic and international reform efforts. Finally, there are organizations that partner directly with for-profit businesses to provide goods or services to communities in need. In its five-year follow-up to the United Nations World Summit on Social Development in Copenhagen in 1995, the U.N. Research Institute for Social Development explicitly acknowledges the importance of pursuing both “hard” and “soft” avenues to greater corporate accountability.

Each of these efforts sows seeds of hope for the emergence of a new business culture, in which the primacy of short-term profit at any social cost is replaced by economic policies to encourage the decentralization of business activity, the diminution of monopoly power, and the establishment of fair trading rules that allow workers and small producers—at home and across the developing world—to maintain their dignity and provide for their families. They inspire a vision of broad economic participation that stands in sharp contrast to the inequalities that are the logical and predictable consequence of our current corporate landscape.

It would be wonderful indeed if the President’s embrace of Catholic social values on the campaign trail carried over into his stewardship of the economy! But the rest of us need not wait for Mr. Bush’s conversion on this point. We can demand corporate accountability and responsible business practices today, through the consumption and investment choices we make, the candidates and political positions we support, the non-profit and faith-based advocacy groups to which we contribute, and the time we set aside for prayer, reading and discussion on these topics.

PETER O’DRISCOLL directs the Private Sector in Development project at the Center of Concern in Washington, DC.